Finance ministers in both the UK and the US, where the global real estate turn down has been particularly brutal, are known to be against offering loans worth more than the property involved and such practices are widely regarded as being a contributory factor to the crisis.
But the UK's Nationwide has announced a new 125% product although it claims it will be only for existing customers who are facing negative equity and are looking to move. 'It is a very niche offer. All we are doing is allowing them to carry across the negative equity they already have. It's not about additional borrowing or additional risk. The maximum borrowing we would consider is 125% overall, but that doesn't mean someone can automatically get that,' a spokesman said.
But some believe that it raises the risk that as the UK property market stabilizes, lenders will start to compete more aggressively for borrowers and offer much better, perhaps irresponsible, terms.
According to Selwyn Lim, director of property research firm Mouseprice, lenders' lax vetting procedures during the boom times were partly to blame for the property crash. 'I would like to think that lenders would have wised up,' said Lim.
'The Nationwide is acting as if the financial crisis never happened, as if the housing market had not crashed, as if the tax payers had not been forced to bail out bank after bank,' said James Golding, a financial consultant in London.
But some experts are supportive of the move. 'Right now, I can't see any sort of problem. There's no doubt that you can get hold of high loan-to-value mortgages but you get penalized on the rate you pay,' said Liam Bailey, head of residential research for real estate consultants Knight Frank.
He added that there were fewer competitive pressures in the mortgage market, with many lenders having closed their doors or joined forces, contributing to a shrinking of the mortgage pool.
Ray Boulger at mortgage broker John Charcol described it is a 'really consumer-friendly move' and added that there are at least two other major lenders actively looking at introducing something similar for existing customers.
